In this issue. The Consumer Financial Protection Bureau (CFPB) issued a final rule to supervise the largest nonbank companies offering digital funds transfer and payment wallet apps; the Financial Crimes Enforcement Network (FinCEN) issued an alert on fraud schemes involving deepfake media targeting financial institutions; the Board of Governors of the Federal Reserve System (Federal Reserve) released its semiannual report on supervision and regulation; a CFPB report detailed student borrower harms from servicing failures and program disruptions; the Federal Deposit Insurance Corporation (FDIC) extended the comment period for the proposed rule on custodial deposit accounts; CFPB Director Rohit Chopra issued a statement on the Federal Trade Commission's (FTC) Click-to-Cancel Rule; and a CFPB pilot study found differential treatment in small business lending markets. These and other developments are discussed in more detail below.
Regulatory Developments
CFPB Issues Final Rule to Supervise the Largest Nonbank
Companies Offering Digital Funds Transfer and Payment Wallet
Apps
On November 21, the CFPB issued a final rule making
nonbank companies subject to CFPB supervision (i.e., examination,
as opposed to only enforcement) if they (1) provide general-use
digital consumer payment applications with an annual volume of at
least 50 million consumer payment transactions in U.S. dollars and
(2) are not a small business concern per the applicable Small
Business Administration's size standard. Anyone who qualifies
as a larger participant will remain a larger participant until two
years from the first day of the tax year in which the person last
met this larger-participant test. This rule is set to take effect
30 days after publication in the Federal Register.
FinCEN Issues Alert on Fraud Schemes Involving Deepfake
Media Targeting Financial Institutions
On November 13, FinCEN issued an alert to help
financial institutions identify fraud associated with deepfake
tools used to falsify identification documents, biometrics, or
other customer verification methods, noting that the widespread
adoption of generative AI has increased the prevalence and
sophistication of deepfakes used to target financial institutions.
FinCEN identified the following red flags for deepfakes:
- Inconsistent photos or identifying information presented by the customer.
- The customer declining to verify their identity via a live call or multifactor authentication.
- A reverse-image lookup or deepfake detection software flagging a customer's image as created by generative AI.
- A customer's metadata (e.g., geographic data) not matching their identity documents.
- A newly opened account with little prior transaction history and high volumes of payments to risky sources or repeat rejected payments.
FinCEN requests that financial institutions observing any of these red flags file a Suspicious Activity Report, with "FIN-2024-DEEPFAKEFRAUD" referenced in the commentary.
"Vigilance by financial institutions to the use of
deepfakes, and reporting of related suspicious activity, will help
safeguard the U.S. financial system and protect innocent Americans
from the abuse of these tools."
— Andrea Gacki, FinCEN Director
Federal Reserve Releases Semiannual Report on
Supervision and Regulation
In November, the Federal Reserve released its latest
semiannual report on supervision and regulation, reporting that the
banking system remains sound and resilient overall, as evidenced by
most banks continuing to report strong capital levels above
applicable regulatory requirements, liquidity and funding
conditions remaining stable compared to 2023, and asset quality
generally remaining sound. The report also acknowledges continued
signs of weakness in credit performance in commercial real estate
lending and some consumer lending sectors. To protect against
potential credit losses, banks are adding to credit loss reserves.
The report also offers regulatory developments and supervisory
updates.
CFPB Report Details Student Borrower Harms from
Servicing Failures and Program Disruptions
On November 15, the CFPB released its annual report of the
CFPB Student Loan Ombudsman covering the 2023-2024 award year. The
report highlights several persistent problems that borrowers face
when interacting with student loan servicers, including payment
processing errors, inaccurate repayment information, and customer
service grievances. The report also examines the ongoing litigation
regarding the SAVE repayment plan implemented by the Biden
Administration and its impact on borrowers. The report recommends
several reforms for the federal student loan system, including
holding borrowers harmless when a student loan servicer causes an
error and extending accountability for those errors to the
servicers. The CFPB also endorses broader reforms for the student
loan system, including with respect to student loan debt
cancellation, lowering the cost of college, and strengthening
consumer protection laws in the private student loan
marketplace.
FDIC Extends Comment Period for Proposed Rule on
Custodial Deposit Accounts with Transactional Features and Prompt
Payment of Deposit Insurance to Depositors
On November 18, the FDIC extended the comment
period by 45 days for its proposed rule on recordkeeping for
custodial accounts. The proposed rule is aimed at enhancing the
FDIC's ability to determine deposit insurance coverage and pay
deposit insurance claims "as soon as possible" in the
event of the failure of an insured depository institution holding
custodial deposit accounts with transactional features. Comments
must now be received by the FDIC on or before January 16, 2025.
Statement of CFPB Director Rohit Chopra on the FTC's
Click-to-Cancel Rule
On November 14, CFPB Director Rohit Chopra issued a statement praising
the consumer protection aspects of the FTC's Click-to-Cancel
Rule, finalized by the FTC on October 16, and promising that the
CFPB would take action against consumer financial firms and other
covered entities that violate the Click-to-Cancel Rule. Among other
requirements for subscription services, the Click-to-Cancel Rule
requires that entities offering subscription services make it as
easy to cancel the subscription as it was to enroll in the
subscription. Chopra's statement highlighted the numerous
complaints that the CFPB has received from consumers regarding
subscription services offered by financial institutions, including
complaints related to unintentionally signing up for subscription
services and the difficulty of cancelling those services.
CFPB Pilot Study Finds Differential Treatment in Small
Business Lending Markets
The CFPB and US Department of Justice conducted matched-pair testing
among trained testers to identify potential differential treatment
among well-qualified Black and white small business owners seeking
credit from large bank lenders. Using both objective and subjective
measures, the study found statistically significant evidence that
Black testers received less encouragement to apply for financing
than their white counterparts. Black testers also received more
information than their white counterparts about non-requested
product types, including credit products typically targeted to
higher credit-risk businesses, such as business credit cards and
real estate-secured loans. The CFPB published its report of these
findings, emphasizing the CFPB's ongoing attention to Equal
Credit Opportunity Act compliance in small business lending and
suggesting that the new small business data collection rule is
likely to result in increased supervisory and enforcement actions
by the CFPB.
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New Client Alert: Corporate Transparency Act: January 1
Deadline is Almost Here
The due date for Corporate Transparency Act (CTA) filings
is rapidly approaching. For most companies formed or registered
before January 1, 2024, the deadline to file is January 1, 2025.
However, certain companies affected by recent hurricanes may
qualify for a six-month extension, provided they meet specific
criteria set by FinCEN. Companies formed or registered during 2024
have 90 days from formation or registration to file. To read the
full alert, click here.
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